Benchmark yield nears crucial mark

Bond yields spiked in the absence of clarity on OMO purchases from RBI that would have absorbed some supply.

MUMBAI: The RBI first rate increase since early 2014 could well increase New Delhi’s market borrowing costs beyond what many may have budgeted.

The benchmark bond yield hit a three-year high, touching almost 8 per cent a day after the central bank surprised bond markets with a quarter percent rise in the policy rates.

Traders have shied away from taking new positions, with RBI measures diminishing the appetite for debt securities.

Yields may rise another 10-15 basis points in the next few days, pushing up the government’s borrowing cost, dealers said. Bond yields and prices move in opposite directions.

“Bond yields spiked in the absence of clarity on OMO purchases from RBI that would have absorbed some supply,” said Vijay Sharma, executive vice-president for fixed income at PNB Gilts. The benchmark bond surged eight basis points on Thursday to close at 7.99 per cent, a level last seen on May 7, 2015. Over the past year, the gauge has climbed 142 basis points, adding to higher credit cost for federal borrowings. Open market operation, or OMO, is a mechanism through which RBI either purchases or sells bonds from/to market participants, a move that ensures cash balance in the banking system. RBI did not give any clarification on OMO purchase operations in the bi-monthly monetary policy announced on Wednesday.